Your work on the project is done, but your final payment is delayed. You then hear that the owner and general contractor are arguing about final payment. The owner contacts you directly to pay your final pay application. You sign the release and get your check. But, the check bounces. Now what? You may be out of luck.
When entering into a settlement agreement on a construction project, you need to make sure that the release is not effective until you receive the funds. Settlement agreements typically contain provisions that require one party to pay the other party a certain amount in exchange for a release. But in construction related settlement agreements, if the release is effective upon signing the settlement agreement and not upon receipt of payment, a court may hold the release is effective even if the settlement check bounces.
In order to avoid this problem, we recommend that you add language to your settlement agreements that the release is not effective until the funds are actually received. We suggest using language like:
THIS WAIVER OF CLAIM AND RELEASE IS CONTINGENT UPON RECEIPT OF PAYMENT and final bank clearance of the Payment.
This may seem like a simple step, but it could be the difference between a release of your claim without payment and being able to pursue your claim.
If you are considering settling a claim on a construction project, we recommend that you contact experienced construction counsel to review the settlement agreement.